Final answer:
An oligopoly is a market structure where a few large firms dominate the market, which leads to high barriers to entry for others, and significant interdependence among the firms. It contrasts with monopolistic competition, where many firms exist with fewer barriers to entry. Oligopolistic markets can adopt characteristics of monopolies and perfect competition, based on strategic choices made by the firms.
Step-by-step explanation:
Oligopoly in Market Structures.An oligopoly, is a market structure in which a small number of interdependent firms compete. Oligopolies are characterized by a few large, profitable firms that dominate the market, possessing significant market power and maintaining high barriers to entry, which often deters smaller firms. A typical oligopolistic market may control approximately 70-80% of product output. Firms within an oligopoly often make differentiated products such as cigarettes, automobiles, and soft drinks, although product differentiation is not a prerequisite for the existence of an oligopoly. The firms are interdependent; any price or output change by one firm directly impacts the others. Collaboration, in terms of restrictive trade practices, can lead to higher prices and lower output similarly to a monopoly. Monopolistic competition, on the other hand, consists of many producers supplying similar but varied products with relatively few barriers to entry. The impact of oligopolies can be seen in various industries, including the commercial aircraft industry dominated by major players like Boeing and Airbus and the U.S. soft drink industry with Coca-Cola and Pepsi. These market structures allow firms to exercise strategic choices concerning output, pricing, and other decisions based on competitors’ actions. An oligopoly can also exhibit characteristics of both monopoly and perfect competition, depending on how the firms decide to interact within the marketplace.